Mortgage famine pushes rents down

18 November 2008 / by Rebecca Sargent

As a lack of mortgage approvals leads to an epidemic of unsold houses, the cost of renting is falling, new lettings research from the Royal Institution of Chartered Surveyors (RICS) has revealed.

According to the latest RICS Residential Letting survey for August, September and October, the number of its members reporting a fall in rents outstripped those reporting a rise by 12 per cent, the lowest levels in the survey's history.

The news comes as surveyors report that the number of new instructions to let both flats and houses are also at an historical high. In fact, 50 per cent more Chartered Surveyors reported a rise than a fall in new instructions for flats and 68 per cent more reported a rise in the number of houses to let, as mortgage lenders stand in the way of potential home buyers with high rates and fees, and tighter lending criteria.

London and the Southeast have been hardest hit by this influx of properties on the rental market. Commenting, Jeremy Leaf, a RICS member based in East Finchley in London, said: "Supply and demand for rented flats and houses increased, particularly in the last few months in response to weakness in the sales market.

"However, concerns about unemployment have meant that rents have softened and some contracts have been cancelled or not been renewed recently."

The news of falling rental costs comes amid rumours that consumer inflation will show a drop when it is announced later today. Such news can only be good for consumers increasingly plagued by interest rate wars and unemployment statistics.

And, according to the statistics, despite these concerns, demand for rental property continues to grow as the number of housing transactions hit the lowest since records began as banks remain reluctant to approve mortgages.

In fact, 27 per cent of RICS members reported a rise in demand compared to a fall for the third quarter of 2008. RICS spokesperson, James Scott-Lee, said: "The lettings sector has witnessed a boom in 2008 as sales in the housing market continued to slow. Many have been able to take advantage of rising rents to secure good returns.

"However, the market place has become more and more competitive as many vendors have been forced to become amateur landlords, creating an inevitable downward pressure on rents where supply has matched demand."

But there is hope for landlords yet, Mr Scott-Lee added: "With national average house prices set to weaken in 2009, yields may increase for those investors who can provide the right product for the right market place."